During the weekend, finance ministers from around the globe agreed to erase the debts of some of the world's most impoverished nations. Although still awaiting the confirmation of the World Bank, the leaders of the world's pre-eminent industrial powers all have cast their support for the deal. This initiative will offer some of the world's poorest countries genuine opportunities for development. Additionally, the World Bank will incur no costs, as the G-8 group - which constitutes some of the world's most powerful and influential nations - will take them on collectively. The G-8 is composed of Great Britain, Canada, France, Germany, Italy, Japan, Russia and the United States. After the culmination of years of negotiating, this deal is a rare and praiseworthy achievement for the international economic world.
The agreement initially will help 18 countries - mostly in Africa - and could wipe out as much as $55 billion in debt. Although that is the nominal amount, a benefit of capitalizing on these debts now is that forgiving them immediately will really only amount to about $18 billion in repayments. The G-8 members have signed on to repay these debts dollar for dollar but not without plenty of debate as to which countries would be forgiven. The original list of 18 countries could eventually grow to about 35 nations. One of the best aspects of this plan is that it is selective. Although the criteria for eligible nations were never made completely clear, officials have pushed for a specific formula, which would apply the same standards to all candidates equally. According to the International Monetary Fund's chairman Gordon Brown, as quoted in The New York Times, eligibility is based primarily on per capita income but also on the existence of sound economic policies. Inclusion in the list also takes into account overall standards of good governance.
This selectivity should continue so that the list of eligible countries is not allowed to grow beyond what the G-8 can handle. This type of selectivity also will serve to weed out countries plagued by corrupt governments, whose problems go beyond mere indebtedness. Although the immediate goal of this plan is to help severely impoverished nations, the broader agenda - backed by the Bush administration and anti-poverty activists - is to shift policy on foreign aid away from loans and toward simple grants. In this way, indebtedness could become less of a problem for poor countries and more wealthy lenders alike.
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Debt erasure aids borrowers, lenders
